FX Futures Delivery

 
 

CME Group transformed global finance when it introduced the world's first financial futures — FX futures — in 1972. Today, CME Group is the largest market for FX futures in the world.

The FX contracts listed at CME Group go through a physical delivery process four times a year on the third Wednesday of March, June, September and December, with the exception of the Mexican peso and the South African rand, which are traded on all twelve calendar months. The Brazilian real also is traded on all twelve calendar months but is not physically delivered — it is cash-settled. The Russian ruble is also cash-settled, but currently is traded on only four calendar months (March, June, September and December). While only a small portion of all CME Group FX futures contracts actually result in physical delivery, an efficient and reliable delivery system is essential to the contracts' fair pricing.

The last day of trading for all FX futures — with three exceptions — is the second business day immediately preceding the third Wednesday of the contract month. For Canadian dollars, futures trading shall terminate on the business day immediately preceding the third Wednesday of the contract month. Brazilian real futures terminate trading at 2:00 p.m. Chicago time on the last business day of the month for the Central Bank of Brazil immediately preceding the contract month. Close of trading for contracts on the Russian ruble is 11:00 a.m. Moscow time on the 15th day of the month, or if not a business day, on the next business day for the Moscow interbank foreign exchange market. The value date for all FX futures shall be on the third Wednesday of the contract month. If that day is not a business day in the country of delivery or is a bank holiday in either Chicago or New York City, then delivery shall be made on the next day which is a business day in the country of delivery and is not a bank holiday in Chicago or New York.

Following is a brief description of the CME Group FX futures delivery process that explains the roles of CME Clearing and market participants, the duties and obligations of CME Group FX futures buyers and sellers, and the process of delivery.

FX Deliveries: Roles of the Exchange and Market Participants

The Exchange's Role 

CME Clearing recognizes its clearing members as the parties to a trade, whether those clearing members are acting for themselves, the accounts of other members, or their customers. When a trade takes place between two clearing members, it is executed through the Exchange's facilities. The Clearing House becomes the buyer to every seller and the seller to every buyer, with a clearing member assuming the opposite side of the transaction. In this way, CME Clearing drastically reduces counterparty risk.

In FX futures trading, the completion of the currency delivery process depends upon the establishment by CME Clearing of banking facilities in both the United States and the indigenous country for each traded currency. The Exchange contracts an Agent Bank to act on its behalf and establishes two accounts with the Agent Bank, a U.S. dollar account to facilitate the delivery of dollars, and a foreign currency account at the Agent Bank's branch or a correspondent bank (acting under contract with the Agent Bank) in the country where the foreign currency will be delivered.

Participants' Role

For most currencies, CME Clearing requires that the long position holder (i.e., the buyer) pay dollars into the U.S.-domiciled International Monetary Market (IMM) delivery account. This is the same account from which the short (i.e., the seller) is paid. Likewise, the transfer of the foreign currency occurs in the indigenous country. The short's delivering bank transfers the currency to the IMM delivery account in that country and the currency is then delivered from that account into the long's account at its bank of choice.

Duties and Obligations of Buyers

Prior to the last day of trading:

The buyer must arrange with a bank to deliver U.S. dollars to the correct IMM delivery account at the respective Agent Bank. The exact dollar amount is determined by the contracts' final settlement price.

The buyer must arrange with a bank in the currency's country of origin to receive the currency on the contract value date. The long position holder must inform his Clearing Firm of the bank and the account details necessary to send the currency to the account.

Two days prior to the last day of trading:

By 4:00 p.m. Chicago time, clearing firms submit to the Clearing House an inventory of deliverable positions. They must include their potential Order-to-Pay bank if necessary.

Last day of trading:

At 11:00 a.m. Chicago time, clearing firms acting on behalf of their customers submit a Buyer's Delivery Commitment form for each customer. This form must be submitted or entered through CLEARING 21®. This form details the number of contracts that the clearing firm will accept delivery of the Payment bank from which U.S. dollars will be arriving (Order-to-Pay bank if necessary), and the account names, account numbers and banks to which to send the foreign currency payment (foreign remittance bank).

One day following the last day of trading for all currencies:

At 1:00 p.m. Chicago time, the buyer must either transfer dollars to the Agent Bank associated with that currency or have his bank issue an "Order-to-Pay" to the Agent Bank. The Order-to-Pay must take the form of a promise to pay in "same day" funds by 10:00 a.m. local time in the currency's country of origin on the value date.

The Clearing House submits information to the agent banks via the Society for Worldwide Interbank Financial Telecom-munications (S.W.I.F.T.) system. CME Clearing then transmits this information to their subsidiary or their agent bank in the currency's country of origin to arrange the transfer to the buyer's account on the value date.

Value Date:

By 10:00 a.m. Chicago time, all Orders-to-Pay must be fulfilled by the transfer of "same day" funds into the IMM delivery account at the appropriate Agent Bank, if necessary.

The IMM delivery bank in the country of issue transfers the contracted currency to all buyers. This occurs whether or not all shorts have delivered the contracted currency to the IMM account.

Duties and Obligations of Sellers

Prior to the last day of trading:

The seller must arrange with a delivery bank to deliver the contracted currency in its country of issue at the appropriate Agent Bank. 

The seller also must arrange with a bank to receive dollars in the U.S. The position holder must inform his or her clearing member of the bank and account number details necessary to send dollars to his or her account.

Two days prior to the last day of trading:

By 4:00 p.m. Chicago time, clearing firms submit to the Clearing House an inventory of deliverable positions. They must include their potential Order-to-Pay bank if necessary.

Last day of trading:

At 11:00 a.m. Chicago time, clearing firms acting on behalf of their customers submit a Seller's Delivery Commitment form for each customer. This form may be submitted or entered through CLEARING 21. This form details the number of contracts to be delivered, the bank from which foreign currency will be arriving (foreign remittance bank), and the account names, account numbers and banks to which to send the U.S. dollar payment (U.S. remittance bank).

Day following the last day of trading for all currencies:

Seller notifies his or her delivery bank of the amount of currency to be delivered on the value date to the IMM delivery account in the country of issue or have his bank issue an Order-to-Pay to the Agent Bank if required by The Clearing House. The Order-to-Pay, if necessary, must take the form of a promise to pay in "same day" funds by 10:00 a.m. local time in the currency's country of origin on the value date.

The Clearing House submits information to the Agent Banks via S.W.I.F.T. CME Clearing then transmits this information to their subsidiary or their agent in the indigenous country of origin, notifying it of the amount and source of deposit to be expected on the value date.

Value date:

By 10:00 a.m. local time the seller's delivering bank transfers the contracted currency to the IMM delivery account at the agent bank in the currency's country of origin.

The agent bank releases the U.S. dollar payments to the sellers.

 

 
 
 
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